Friday, 26 April 2013

Interesting blog bits

A debate on efficient/inefficient institutions.

Pirate Democracy? Acemoglu and Robinson argue that democracy arises when nondemocratic elites are forced to cede power to the previously disenfranchised and not as a way to solve some inefficiency. Acemoglu and Robinson claim that this view that democracy solves an inefficiency, a view referred to as the “efficient institutions view”, is wrong but underlies Peter Leeson's view of pirate democracy. In Acemoglu and Robinson's view pirate democracy is better explained in terms of power.

Why did Pirates Choose Democracy? Peter Leeson replies to Acemoglu and Robinson. Leeson says Acemoglu and Robinson are right to characterise his view of pirate institutions as efficient. Leeson claims that pirates choose a system of democracy and separated powers to solve a principal-agent problem, to stop abuse of power by their captains and Leeson says the evidence shows this.

Efficient Organization among Pirates? Acemoglu and Robinson counter that they find the general presumptions upon which the efficient institutions view rests fairly unconvincing. What are exactly the forces that will ensure that institutions are efficient? And efficient for whom? Note that legitimate ships, 18th-century merchantmen, from which pirates were drawn were not democratic, but pirates were, Why?. If democracy was efficient for pirates, why not for merchantmen too?

Efficient Institutions are Context Dependent. Leeson replies that democracy’s cost was far higher for merchantmen than for pirates. Merchantmen were organized and outfitted by external financiers—wealthy landlubbers who had commercial expertise and capital, but weren’t sailors and thus hired seamen to sail their ships. To make sure crewmembers didn’t shirk, embezzle cargo, or steal the vessels they sailed on in owners’ absence, owners appointed officers to monitor and control them. Allowing crewmembers to democratically elect their officers instead would’ve been extremely costly in this context. Merchant sailors who could choose their officers democratically would have an incentive to elect the opposite kind of officer from what owners wanted—the kind of officer who would let sailors do whatever they pleased, destroying voyages’ profitability. Pirate ships, in contrast, weren’t organized or financed by external landlubbers. Pirates stole their vessels jointly: they were both the owners and employees of their ships. Because of this, democracy’s major potential cost on merchantmen—the prospect of crewmembers electing lax officers and thus undermining voyages’ profitability—was absent on pirate ships. Pirates who elected lax officers, qua employees, would’ve undermined their own interest, qua owners. Their incentive was therefore to elect the kind of officer that maximized profit. Consequently, for pirates, democracy was cheap